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New Jersey's Liberal New Governor Faces a Fiscal Nightmare

New Jersey's Liberal New Governor Faces a Fiscal Nightmare

Raising taxes will be even harder now that Congress has limited the state and local tax deduction.

Democrat Phil Murphy cruised to victory in New Jersey’s gubernatorial race in November. The state’s powerful public-sector unions, which endorsed his progressive vision of higher taxes and more spending, played a pivotal role in his 14-point victory. Now the hard part begins.

As he takes office later this month, Mr. Murphy must confront the state’s biggest problem—a pension system that is about $90 billion short of what it needs to pay future benefits. He has already promised to devote some of the new revenue from his proposed taxes to pensions, but he can’t fully shore up the system without benefit reductions. And the unions that supported him have fiercely resisted such cuts. Can a progressive Democrat elected with the help of unions govern responsibly in an age of exploding public-employee costs and limited tax resources?

New Jersey’s pension woes aren’t new. A succession of governors and legislatures enhanced worker benefits without properly accounting for their costs. In 2010 the Securities and Exchange Commission cited the state for fraud because of the way it misled investors about its retirement system’s funding problems. It was the first state to earn this dubious distinction.